> If there really is a design advantage to small wheels, I wonder what the physics there are. Large wheels are good on road where you will encounter potholes etc.
Meh. 17" wheels do great on the road.
So the physics is basically this.
DISADVANTAGES. Small wheels have a steeper angle of attack, so they're somewhat bumpier on tough surfaces. That's easily dealt with using a small full suspension to glue wheels to the road, just like it's done on motorcycles. Small wheels are more difficult to gear high. There are lots of common approaches to that. And small wheels often have more squirrely steering, because it's harder (not impossible) to give them a lot of mechanical trail. This in turn presents a problem for going downhill fast where steering stability matters. Last, of course, the tires wear out faster.
ADVANTAGES. Numerous. Small wheels are far more aerodynamic. They can be much lighter. They are far, far stronger and require fewer spokes. And they have much smaller rotational inertia, translating into faster acceleration and deceleration. Last, they allow for a much wider range of design options, including fairings. Large wheels are quite cumbersome in that regard.